SEC Issues Proposal to Reduce Risks in Clearance and Settlement

There are significant risks related to the clearance and settlement of certain securities. The Securities and Exchange Commission (SEC) has proposed certain rule changes to increase transparency and reduce the risk of these transactions.

The new rule changes would shorten the standard settlement cycle for the vast majority of broker and dealer transactions. Typically, they take place two business days after the trade date, also known as T + 2. The new rule changes would shorten this period to one business day after the trade date.

The SEC has proposed these rule changes to reduce liquidity, market, and credit risks that securities transactions otherwise face. This would benefit brokers, dealers, and investors alike.

The SEC Wants To Make the Market More Efficient

The goal of these amendments proposed by the SEC is to reduce the risk to the financial system by streamlining the clearance and settlement process. As a result, financial markets would become more efficient.

A few potential impacts of these changes include:

  • The settlement cycle would be shortened, reducing the amount of margin that certain parties might have to post with specific clearinghouses.
  • These changes would require affirmations, allocations, and confirmations to take place on the trade date.
  • These rule changes would require clearing agencies to have matching services in place to facilitate the processing of automatic transactions.

Many of these proposed changes are a reflection of modern technology and represent the belief that companies should be able to comply with these new regulations without too much effort. All of this will make the market’s operations more efficient, increasing transparency and clarity for brokers, dealers, and investors alike.

The New Changes Would Shorten the Confirming and Affirming Process

The new rule proposals are also targeted at specific broker-dealers and registered investment professionals to reduce the length of affirming and confirming trade information. The goal is to make sure it can be completed by the end of the trade date. Furthermore, the proposal includes a new requirement to facilitate straight-through processing. Certain clearing agencies would be responsible for facilitating this, shortening the time it takes to complete a trade. New policies and procedures would also require these agencies to issue an annual report on their ability to comply with these new timelines.

These proposals directly address a lot of the challenges that investors face. Instead of having to include a certain amount of margin, these changes would increase transparency and financial flexibility.

Count on Financial Professionals To Help With These Rule Changes

Right now, these regulations are open for a public comment period of 60 days where people can share their thoughts with the SEC. If they go into effect, companies will need to streamline their processes to comply with these new regulations. Colonial Stock Transfer’s transfer agent services can help companies stay in compliance with these new changes. We can help public companies facilitate this new T+1 rule change to maintain the confidence of shareholders while avoiding potential regulatory sanctions.

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